Part 1 Excise duties

Tobacco products duty

1 Rates of tobacco products duty

(1) For the Table of rates of duty in Schedule 1 to the Tobacco Products Duty Act 1979 (c. 7) substitute—

(2) This section shall be deemed to have come into force at 6 o'clock in the evening of 16th March 2005.

Alcoholic liquor duties

2 Rate of duty on beer

(1) In section 36(1AA)(a) of ALDA 1979 (rate of duty on beer) for “£12.59” substitute “£12.92”.

(2) This section shall be deemed to have come into force at midnight on 20th March 2005.

3 Rates of duty on wine and made-wine

(1) For Part 1 of the Table of rates of duty in Schedule 1 to ALDA 1979 (rates of duty on wine and made-wine) substitute—

Part 1 Wine and made-wine of a strength not exceeding 22 per cent

(2) This section shall be deemed to have come into force at midnight on 20th March 2005.

Hydrocarbon oil etc duties

4 Consolidation of current rates of hydrocarbon oil duties etc.

(1) HODA 1979 is amended as follows.

(2) In subsection (1A) of section 6 (hydrocarbon oil: rates of duty)—

(a) in paragraph (a) (ultra low sulphur petrol), for “£0.4902” substitute “£0.4710”,

(b) in paragraph (aa) (sulphur-free petrol), for “£0.4852” substitute “£0.4710”,

(c) in paragraph (b) (light oil other than ultra low sulphur petrol and sulphur-free petrol), for “£0.5790” substitute “£0.5620”,

(d) in paragraph (c) (ultra low sulphur diesel), for “£0.4902” substitute “£0.4710”,

(e) in paragraph (ca) (sulphur-free diesel), for “£0.4852” substitute “£0.4710”, and

(f) in paragraph (d) (heavy oil other than ultra low sulphur diesel and sulphur-free diesel), for “£0.5487” substitute “£0.5327”.

(3) In subsection (3) of that section (aviation gasoline), for “(1A) above in relation to light oil” substitute “(1A)(b) above”.

(4) In section 6AA(3) (biodiesel), for “£0.2852” substitute “£0.2710”.

(5) In section 6AD(3) (bioethanol), for “£0.2852” substitute “£0.2710”.

(6) In section 8(3) (road fuel gas)—

(a) in paragraph (a) (natural road fuel gas), for “£0.1110” substitute “£0.0900”, and

(b) in paragraph (b) (other road fuel gas), for “£0.1303” substitute “£0.0900”.

(7) In section 11(1) (rebate on heavy oil)—

(a) in paragraph (a) (fuel oil), for “£0.0624” substitute “£0.0482”,

(b) in paragraph (b) (gas oil which is not ultra low sulphur diesel), for “£0.0664” substitute “£0.0522”, and

(c) in paragraph (ba) (ultra low sulphur diesel), for “£0.0664” substitute “£0.0522”.

(8) In section 13AA(1) (restrictions on use of rebated kerosene), for “for rebated gas oil which is then in force, instead of at the rate then in force under section 11(1)(c) above” substitute “then in force under paragraph (b) of subsection (1) of section 11, instead of at the rate then in force under paragraph (c) of that subsection”.

(9) In section 13A(1) (rebate on unleaded petrol), for “£0.0620” substitute “£0.0601”.

(10) In section 14(1) (rebate on light oil for use as furnace oil), for “£0.0624” substitute “£0.0482”.

(11) In consequence of the preceding provisions the following instruments are revoked—

(a) the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) Order 2004 (S.I. 2004/2063),

(b) the Excise Duties (Road Fuel Gas) (Reliefs) Regulations 2004 (S.I. 2004/2069),

(c) the Excise Duties (Surcharges or Rebates) (Hydrocarbon Oils etc.) (Amendment) Order 2004 (S.I. 2004/3160), and

(d) the Excise Duties (Surcharges or Rebates) (Bioethanol) Order 2004 (S.I. 2004/3162).

(12) This section comes into force on the day on which this Act is passed.

5 Rates of hydrocarbon oil duties etc. from 1st September 2005

(1) HODA 1979 is amended as follows.

(2) In subsection (1A) of section 6 (hydrocarbon oil: rates of duty)—

(a) in paragraph (a) (ultra low sulphur petrol), for “£0.4710” substitute “£0.4832”,

(b) in paragraph (aa) (sulphur-free petrol), for “£0.4710” substitute “£0.4832”,

(c) in paragraph (b) (light oil other than ultra low sulphur petrol and sulphur-free petrol), for “£0.5620” substitute “£0.5766”,

(d) in paragraph (c) (ultra low sulphur diesel), for “£0.4710” substitute “£0.4832”,

(e) in paragraph (ca) (sulphur-free diesel), for “£0.4710” substitute “£0.4832”, and

(f) in paragraph (d) (heavy oil other than ultra low sulphur diesel and sulphur-free diesel), for “£0.5327” substitute “£0.5465”.

(3) In section 6AA(3) (biodiesel), for “£0.2710” substitute “£0.2832”.

(4) In section 6AD(3) (bioethanol), for “£0.2710” substitute “£0.2832”.

(5) In section 8(3) (road fuel gas)—

(a) in paragraph (a) (natural road fuel gas), for “£0.0900” substitute “£0.1080”, and

(b) in paragraph (b) (other road fuel gas), for “£0.0900” substitute “£0.1270”.

(6) In section 11(1) (rebate on heavy oil)—

(a) in paragraph (a) (fuel oil), for “£0.0482” substitute “£0.0604”,

(b) in paragraph (b) (gas oil which is not ultra low sulphur diesel), for “£0.0522” substitute “£0.0644”, and

(c) in paragraph (ba) (ultra low sulphur diesel), for “£0.0522” substitute “£0.0644”.

(7) In section 13A(1) (rebate on unleaded petrol), for “£0.0601” substitute “£0.0617”.

(8) In section 14(1) (rebate on light oil for use as furnace oil), for “£0.0482” substitute “£0.0604”.

(9) This section comes into force on 1st September 2005.

Gaming duty

6 Rates of gaming duty

(1) For the Table in section 11(2) of FA 1997 (rates of gaming duty) substitute—

(2) This section has effect in relation to accounting periods beginning on or after 1st April 2005.

Vehicle excise duty

7 Rates

(1) VERA 1994 is amended as follows.

(2) In section 4 (vehicle licences: amount of duty), omit—

(a) subsection (3) (treatment of fractions of five pence in determining rate of duty on six month licence which is set at 55% of annual rate), and

(b) in subsection (7) (power to amend or repeal by order), “or (3)”.

(3) In section 13(3)(b) (trade licences: annual rate of duty for licences not to be used only for motorcycles not exceeding 450 kilograms in weight unladen) as currently in force, for “annual rate currently applicable to a vehicle under paragraph 1(2) of Schedule 1” substitute “basic goods vehicle rate currently applicable”.

(4) In section 13(4)(b) (trade licences: annual rate of duty for licences not to be used only for motorcycles not exceeding 450 kilogrammes in weight unladen) as set out in paragraph 8(1) of Schedule 4 to have effect on and after a day appointed by order, for “annual rate currently applicable to a vehicle under paragraph 1(2) of Schedule 1” substitute “basic goods vehicle rate currently applicable”.

(5) In both versions of section 13, after subsection (6) insert—

“(7) In this section “the basic goods vehicle rate” means the annual rate applicable, by virtue of sub-paragraph (1) of paragraph 9 of Schedule 1, to a rigid goods vehicle which—

(a) is not a vehicle with respect to which the reduced pollution requirements are satisfied, and

(b) falls within column (3) of the table in that sub-paragraph and has a revenue weight exceeding 3,500 kilograms and not exceeding 7,500 kilograms.”

(6) In sections 35A(5) and 36(3) (dishonoured cheques: appropriate annual rate of vehicle excise duty), for the words from “to the annual rate” to “(or” substitute—

“(a) in the case of a vehicle licence, to the annual rate which at the beginning of the relevant period was applicable to a vehicle of the description specified in the application, or

(b) in the case of a trade licence, to the basic goods vehicle rate (within the meaning of section 13) which was applicable at that time (or to the annual rate which at that time was applicable”.

(7) Schedule 1 (annual rates of duty) is amended as follows.

(8) In paragraph 1(2) (general rate of duty except in case of vehicle with engine with cylinder capacity not exceeding 1,549 cubic centimetres), for “£165” substitute “£170”.

(9) For the Table in paragraph 1B (rates of duty applicable to light passenger vehicles registered on or after 1st March 2001 on basis of certificate specifying CO₂ emissions figure) substitute—

(10) In paragraph 3(1A) (rate applicable to buses with respect to which reduced pollution requirements are satisfied), for “the general rate specified in paragraph 1(2)” substitute “£165”.

(11) In paragraph 7(3A)(b) (rate applicable to haulage vehicles which are not showman’s vehicles and with respect to which reduced pollution requirements are satisfied), for “the general rate specified in paragraph 1(2)” substitute “£165”.

(12) In paragraph 10 (trailer supplement)—

(a) in sub-paragraph (2) (rate where plated gross weight of trailer exceeds 4,000 kilograms but does not exceed 12,000 kilograms), for “an amount equal to the amount of the general rate specified in paragraph 1(2)” substitute “£165”,

(b) in sub-paragraph (3) (rate where plated gross weight of trailer exceeds 12,000 kilograms), for “an amount equal to 140 per cent of the amount of the general rate specified in paragraph 1(2)” substitute “£230”, and

(c) omit sub-paragraphs (3A) and (3B) (rounding of rate set under sub-paragraph (3) as percentage of general rate specified in paragraph 1(2)).

(13) Subsection (2), and subsection (1) so far as relating to it, have effect on the day on which this Act is passed.

(14) Subsection (4), and subsections (1) and (5) so far as relating to it, have effect on and after that day.

(15) Subsection (6), and subsection (1) so far as relating to it, have effect on and after 17th March 2005.

(16) Subject to that, this section has effect in relation to licences taken out on or after 17th March 2005 for a period beginning on or after 1st April 2005.

Part 2 Income tax, corporation tax and capital gains tax

Chapter 1 Income tax and corporation tax charge and rate bands

Income tax

8 Charge and rates for 2005-06

Income tax shall be charged for the year 2005-06, and for that year—

(a) the starting rate shall be 10%;

(b) the basic rate shall be 22%;

(c) the higher rate shall be 40%.

9 Personal allowances for those aged 65 or more

(1) For the year 2005-06—

(a) the amount specified in section 257(2) of ICTA (claimant aged 65 or more) shall be £7,090; and

(b) the amount specified in section 257(3) of that Act (claimant aged 75 or more) shall be £7,220.

(2) Accordingly, section 257C(1) of that Act (indexation), so far as it relates to the amounts so specified, does not apply for that year.

Corporation tax

10 Charge and main rate for financial year 2006

Corporation tax shall be charged for the financial year 2006 at the rate of 30%.

11 Small companies' rate and fraction for financial year 2005

For the financial year 2005—

(a) the small companies' rate shall be 19%, and

(b) the fraction mentioned in section 13(2) of ICTA (marginal relief for small companies) shall be 11/400ths.

12 Corporation tax starting rate and fraction for financial year 2005

For the financial year 2005—

(a) the corporation tax starting rate shall be 0%, and

(b) the fraction mentioned in section 13AA of ICTA (marginal relief for small companies) shall be 19/400ths.

13 Non-corporate distribution rate for financial year 2005

The non-corporate distribution rate for the financial year 2005 shall be 19%.

Trusts

14 Special trust rates not to apply to first slice of trust income

(1) In ICTA, after section 686C insert—

“686D Special trust rates not to apply to first slice of trust income

(1) This section applies where income arising (or treated as arising) to the trustees of a trust in a year of assessment consists of or includes income subject to a special trust tax rate (“the special trust tax rate income”).

(2) “Income subject to a special trust tax rate” means any income which is (or apart from this section would be) chargeable to income tax at—

(a) the dividend trust rate, or

(b) the rate applicable to trusts.

(3) So much of the special trust tax rate income as does not exceed £500 is not chargeable to income tax at the dividend trust rate or the rate applicable to trusts (but is instead chargeable to income tax at the basic rate, the lower rate or the dividend ordinary rate, depending on the nature of the income).

(4) In the following provisions “the relevant purposes” means the purposes of—

(a) determining (in accordance with section 1A(5)) which of the special trust tax rate income is not chargeable to income tax at the dividend trust rate, or the rate applicable to trusts, by virtue of subsection (3), and

(b) determining at which of the basic rate, the lower rate and the dividend ordinary rate that special trust tax rate income is chargeable to income tax.

(5) For the relevant purposes the fact that any amount forming part of the special trust tax rate income is subject to a special trust tax rate is to be disregarded if, in any circumstances, an amount of that description is chargeable on trustees at the basic rate, the lower rate or the dividend ordinary rate.

(6) For the relevant purposes any of the special trust tax rate income that consists of—

(a) an amount which, by virtue of section 686A, is treated for the purposes of the Tax Acts as if it were income to which section 686 applies, or

(b) income treated as arising under Chapter 5 of Part 4 of ITTOIA 2005 (stock dividends from UK resident companies),

is to be regarded as income to which section 1A applies and which is chargeable at the dividend ordinary rate.

(7) For the relevant purposes any of the special trust tax rate income that consists of—

(a) income treated as arising under section 761(1) (offshore income gains),

(b) income treated as received under section 68 of FA 1989 (employee share ownership trusts), or

(c) profits or gains which are treated as income under Chapter 12 of Part 4 of ITTOIA 2005 (guaranteed returns on disposals of futures and options) and in relation to which section 568 of that Act applies (profits or gains not meeting conditions of that section),

is or are to be regarded as chargeable at the basic rate.

(8) For the relevant purposes any of the special trust tax rate income that consists of—

(a) income treated as received under section 714(2) or 716(3) (transfers of securities),

(b) profits taken to be income arising under Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities), or

(c) gains which are treated as arising under Chapter 9 of that Part and on which tax is charged at the rate applicable to trusts under section 467(7)(b) of that Act (gains from contracts for life assurance),

is or are chargeable at the lower rate.”

(2) In section 686(1) of ICTA (accumulation and discretionary trusts: special rates of tax), after “shall” insert “(subject to section 686D)”.

(3) In subsection (3) of section 687 of ICTA (payments under discretionary trusts: amounts to be set against amount assessable on trustees under subsection (2)(b) of that section), after paragraph (a) insert—

“(aa1) the amount of any tax on income arising to the trustees which is charged by virtue of section 686D(3) at the basic rate or the lower rate;”.

(4) After that subsection insert—

“(3A) Paragraphs (a1) to (bc) of subsection (3) above do not apply in relation to income, distributions or sums chargeable to tax by virtue of section 686D(3) at the basic rate, the lower rate or the dividend ordinary rate.”

(5) This section applies for the year 2005-06 and subsequent years of assessment.

Chapter 2 Personal taxation

Taxable benefits

15 Childcare vouchers: exempt amount

(1) Section 270A of ITEPA 2003 (limited exemption for qualifying childcare vouchers) is amended as follows.

(2) In subsection (6) (exempt amount), for “£50 for each qualifying week in that year” substitute “the sum of—

(a) £50 for each qualifying week in that year, and

(b) the voucher administration costs for that year.”

(3) After that subsection insert—

“(6A) The “voucher administration costs” for any tax year in respect of which qualifying childcare vouchers are provided for an employee means the difference between the cost of provision of the vouchers and their face value.

The face value of a voucher is the amount stated on or recorded in the voucher as the value of the provision of care for a child that may be obtained by using it.”

(4) After subsection (10) insert—

“(10A) In this section “ cost of provision”, in relation to a childcare voucher, has the meaning given in section 87(3) and (3A).”

(5) This section has effect for the year 2005-06 and subsequent years of assessment.

16 Extension of exemptions for childcare, workplace parking, cycles etc

(1) ITEPA 2003 is amended as follows.

(2) In section 237(1) (exemption for provision of workplace parking), for “No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge)” substitute “No liability to income tax arises”.

(3) In section 244(1) (exemption for provision of cycles and cyclist’s safety equipment), for “No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge)” substitute “No liability to income tax arises”.

(4) In section 270A(1) (limited exemption for qualifying childcare vouchers), for “employee, liability” substitute “employee—

(a) no liability to income tax arises by virtue of section 62 (general definition of earnings), and

(b) liability”.

(5) In section 318(1) (childcare: exemption for employer-provided care), for “No liability to income tax arises by virtue of Chapter 10 of Part 3 (taxable benefits: residual liability to charge)” substitute “No liability to income tax arises”.

(6) In section 318A(1) (childcare: limited exemption for other care), for “child, liability” substitute “child—

(a) no liability to income tax arises by virtue of section 62 (general definition of earnings), and

(b) liability”.

(7) This section has effect for the year 2005-06 and subsequent years of assessment.

17 Transfer of previously loaned computer or cycle etc

(1) Section 206 of ITEPA 2003 (cost of the benefit: transfer of used or depreciated asset) is amended as follows.

(2) In subsection (3)(a), for “a car (within the meaning of Chapter 6)” substitute “an excluded asset (see subsection (6))”.

(3) After subsection (5) insert—

“(6) An excluded asset is—

(a) a car (within the meaning of Chapter 6),

(b) computer equipment that has previously been applied as mentioned in subsection (3)(b) in circumstances in which the conditions set out in section 320 were met, or

(c) a cycle or cyclist’s safety equipment that has previously been so applied in circumstances in which the conditions set out in section 244 were met.”

(4) This section has effect for the year 2005-06 and subsequent years of assessment.

18 Extension of outplacement services etc exemption: part-time employees

(1) ITEPA 2003 is amended as follows.

(2) In section 310 (counselling and other outplacement services) in subsection (4) (person to have been employed full-time in the employment which is ceasing for a specified period) omit “full-time”.

(3) In section 311 (retraining courses) in subsection (3) (conditions to be satisfied in relation to the course)—

(a) at the end of paragraph (b) insert “and”;

(b) in paragraph (c) (course to last no more than one year) for “one year” substitute “two years”;

(c) omit paragraph (d) (employee to attend the course on a full-time or substantially full-time basis) and the word “and” before it.

(4) In that section, in subsection (4)(c) (person to be employed full-time in the employment which is ceasing for a specified period) omit “full-time”.

(5) This section has effect in relation to the year 2005-06 and subsequent years of assessment.

Armed forces

19 Armed forces pensions and compensation schemes

(1) ITEPA 2003 is amended as follows.

(2) In subsection (1) of section 393 as originally enacted (application of Chapter 2 of Part 6) after “non-approved retirement benefits scheme” insert “other than a scheme established by an order under section 1(2) of the Armed Forces (Pensions and Compensation) Act 2004 (armed and reserve forces compensation schemes)”.

(3) In paragraph (a) of section 639 (exemption from income tax for pensions due to military service etc)—

(a) for “the Department of Work and Pensions” substitute “the Ministry of Defence”;

(b) for “any Order in Council, Royal Warrant, order or scheme” substitute “instrument specified in subsection (2),”.

(4) At the end of section 639 (which becomes subsection (1)) insert—

“(2) The instruments referred to in subsection (1)(a) are—

• Defence (Local Defence Volunteers) Regulations 1940 (S.R. & O. 1940/748),

• War Pensions (Coastguards) Scheme 1944 (S.R. & O. 1944/500),

• War Pensions (Naval Auxiliary Personnel) Scheme 1964 (S.I. 1964/1985),

• Pensions (Polish Forces) Scheme 1964 (S.I. 1964/2007),

• War Pensions (Mercantile Marine) Scheme 1964 (S.I. 1964/2058),

• Order by Her Majesty concerning pensions and other grants in respect of disablement or death due to service in the Home Guard (1964 Cmnd. 2563),

• Order by Her Majesty concerning pensions and other grants in respect of disablement or death due to service in the Home Guard after 27th April 1952 (1964 Cmnd. 2564),

• Order by Her Majesty concerning pensions and other grants in respect of disablement or death due to service in the Ulster Defence Regiment (1971 Cmnd. 4567),

• Personal Injuries (Civilians) Scheme 1983 (S.I. 1983/686),

• Naval, Military and Air Forces etc. (Disablement and Death) Service Pensions Order 1983 (S.I. 1983/883).

(3) The Treasury may by order amend subsection (2).”.

(5) After section 640 insert—

“640A Lump sums provided under armed forces early departure scheme

No liability to income tax arises on a lump sum provided under a scheme established by the Armed Forces Early Departure Payments Scheme Order 2005 (S.I. 2005/437).”.

(6) In section 641 (exemption from income tax for armed forces disability pensions etc), after paragraph (g) of subsection (1) insert—

“(h) a benefit under a scheme established by an order under section 1(2) of the Armed Forces (Pensions and Compensation) Act 2004 payable to a person by reason of his illness or injury—

(i) by way of a lump sum, or

(ii) following the termination of the person’s service in the armed forces or reserve forces.”.

(7) The amendment made by subsection (2) has effect for the year 2005-06.

(8) The amendments made by subsections (3) and (4) are deemed always to have had effect.

(9) The amendments made by subsections (5) and (6) have effect for the year 2005-06 and subsequent years of assessment.

Chapter 3 Employment-related securities

20 Research institution spin-out companies

(1) In Part 7 of ITEPA 2003 (employment income: income and exemptions relating to securities), after Chapter 4 insert—

“Chapter 4A Shares in research institution spin-out companies

Introduction

451 Application of this Chapter

(1) This Chapter applies where—

(a) an agreement is made for one or more transfers of intellectual property (an “intellectual property agreement”) from one or more research institutions to a company (a “spin-out company”),

(b) a person acquires shares (or an inter